The 40 % increase in sales proceeds to 1,068 million EUR generated by the VERBUND Group in the first half of 2002 was mainly attributable to successes in the sales sector in almost all customer segments both in Austria and abroad.

The export turnover, above all the positive business development in Germany, increased by 22 % to 115 million EUR as prices were rising again, sales in trading increased by 133 % to 466 million EUR. The business development in the home market was also successful. Sales with the provincial companies rose by 8 % to 211 million EUR; in the domestic industrial customer segment, which accounts for 70% of the domestic market, even a 130 % sales increase to 51 million EUR was recorded.

It is worth mentioning that the average proceeds in almost all customer segments increased again and were more than 5% higher than those recorded in the first half of 2001. The inverse price structure, i.e. the fact that the contract prices are partly lower than the market prices, is increasingly beginning to disappear. After declining due to the full liberalization of the power markets in the past few years the contribution margin from power trading increased.

During the first 6 months of the year under review the available domestic water supply, which is a substantial production factor for VERBUND hydroelectricity, was not so good as in the previous years. Although the water regime was still 2 % above the long-term average, it went down by 9 % compared to last year’s reference period. The resulting decrease in sales proceeds and the higher power purchase prices presented a strain of approx. 12 million EUR for the operating result.

On the whole VERBUND again records an increase in the operating result by 4 % to 152 million EUR despite the reduced water supply. Due to the improved financial result the group result increased by no less than 31 % to 82 million EUR, hence the mid-year earnings per share are already clearly higher than those of the first half of 2001 (2.65 EUR versus 2.02 EUR).

The liquidity situation also showed a positive development. The operating cash flow increased by 26 % to 173 million EUR, the free cash flow more than doubled.

What is worth emphasizing is the improvement of the Group’s capital structure, which the company has been pressing ahead for years. Despite the transfer of the hydropower and the thermal power plants of the Styrian provincial supplier STEWEAG to the VERBUND subsidiaries AHP and ATP and the assusmption of their debts the group’s net gearing was reduced from 273 % to 253 %.

Negotiations for an Austrian Power Solution

In the first half of 2002 intense negotiations on the creation of an Austrian power solution between VERBUND and the partner companies of Energie Allianz, EVN, Wienstrom, EnAG, BEWEAG, BEGAS and LinzAG were carried on. On 4/29/2002 the first phase was over, in which the basic features of the cooperation model and detailed concept papers on the output phases of power production, power trading and power sales were outlined. In the second phase of negotiations, which ended on 7/18, the detailed contracts, in particular the cooperation agreement, the outline energy agreement production/trade, the outline energy agreement trade/sales, and the labelling fee agreement, were negotiated. In the second half of 2002, in project phase three, the required approvals with regard to corporate agents and the antitrust law are to be obtained, and all steps for the change of legal form are to be prepared. The planned implementation of the strategic partnership is to begin as of 1/1/2003.

The Austrian power solution is a cooperation at the level of the output stages power production, power trading and power sales. Two amalgamated companies form the basis of the cooperation. The function of APT, the joint power trading company under the clear management of VERBUND (VERBUND: 67 %, Energie Allianz: 33 %) is exclusively to procure and market energy as internal marketplace. It also controls the use of the power plants and is responsible for the wholesale trade in Austria and abroad as well as foreign power trading. The joint wholesale trading company e&s, managed by Energie Allianz (Energie Allianz: 67 , VERBUND: 33 %), supplies big customers who buy more than 4 GWh/year.

Within the strategic partnership VERBUND would strengthen its core competences power production, wholesale business and power trading und thus achieve considerable synergies. On the whole, VERBUND would be able to profit from a clear potential of improvement in performance amounting to approx. 40 million EUR, which could be achieved already in the short run, and thus improve corporate value and relevant ratios.

VERBUND

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